As BOJ Holdings Surpass ¥100 Trillion, It Gets An Ultimatum: "Stop Being Independent Or Lose Your Independence"

Tyler Durden's picture

2013, which is still a week away, is already off to a 'crazy pills' bang. Because while the bulk of the politipunditry is shocked, shocked, that it was dead wrong about the Cliff outcome which is now set to ram the country front and center on January 1, the most amusement appears to be emanating from the land of the rising sun, where the brand new PM just issued an ultimatum to the central bank, which can be summarized as follows: stop being independent, or we will change the laws and take away your independence.

This is merely the latest attempt by a government - which obviously knows better than the collective known as the market (or was the market before central-banks decided to make a mockery of the term) to define both fiscal and monetary policy, the way Goldman Sachs has been able to do for decades in the US, Europe, and now UK.

What, however, guarantees the fun factor this time is that Abe, as the FT summarizes, already had a stint in control back in 2006-2007 which "ended amid ill health, scandal and policy failure." Specifically, it ended in a bout of explosive diarrhea as we reported previously (no seriously) which was the scapegoat to "justify" Abe's early retirement. So where Abe failed, with limited intervention, he will now succeed with virtually unlimited control over both the fiscal and monetary apparatus. One can now see where the amusement possibilities are virtually unlimited.

From the FT:

Shinzo Abe, Japan’s prime-minister-in-waiting, has threatened to revise the law governing the Bank of Japan if it refuses to introduce a 2 per cent inflation target at its January policy meeting.


It marks the most explicit challenge yet from Mr Abe to the independence the central bank has enjoyed since 1998 in setting monetary policy.


In an appearance on Fuji TV on Sunday, Mr Abe, who this week is set to become Japan’s seventh prime minister in just over six years, said a new approach was essential to defeating the deflation dogging the economy.


“It has to be different from the traditional methods – the traditional methods have not been able to defeat deflation for more than a decade. That’s no good,” he said.




At a monetary policy meeting last week, the BoJ board announced an expansion of its current asset buying programme but stopped short of bowing to Mr Abe’s target demand, saying only that it would discuss the issue at its next gathering, in late January. 


“If, regrettably, that does not happen, then we will revise the BoJ law and put together an inflation targeting accord [between the government and central bank],” Mr Abe said on Sunday.


As well as adopting the new inflation target, the BoJ should also take on responsibility for promoting employment, he said.

In fact, it would be best if the BOJ simply starts doing everything that the Japanese government had been trying to do for the past 30 years and failing. That way Abe can avoid using diarrhea as an alibi in 2014 when his latest bout of policies are confirmed to be even more catastrophic than before.

Yet the main reason for this ridiculous approach to openly sequestering the central bank's "independence" which was never there to begin with, is because Japan is merely jumping on the same bandwagon that the US, Europe and soon, the BOE are on: the bandwagon that demands unlimited easing until a given economic goal is reached.

Sadly, the paradox is that it is precisely the central banks' interventions that make achievement of such goals impossible, but that is a topic for a different post.

For now, all that needs to be pointed out is that the BOJ is about to lose any last trace of independence just as its balance sheet surpasses JPY100 trillion, just as total Japanese debt surpasses JPY1 quadrillion. From Bloomberg:

The Bank of Japan’s holdings of the government’s bonds exceeded 100 trillion yen ($1.2 trillion) for the first time, raising the risk that yields will jump on perceptions that it is financing public spending.


The central bank held 104.9 trillion yen of the debt at the end of September, 11.1 percent of all government bonds, a quarterly central bank report showed today in Tokyo. The BOJ said it was the highest on record. Bond holdings by foreign investors rose to a record 9.1 percent.

This is just as the BOJ launches QE10 (which resulted in a USDJPY drop immediately) which added another JPY10 trillion to the total asset purchases, two months after a failed QE9 and three months after a failed QE8. Because everyone knows that the 11th time will be the charm.

More importantly, total Japanese public debt is now over JPY1 quadrillion.

Most importantly, the Japanese government is about to force the BOJ into overdrive at a time when even the tiniest increase in public funding costs, courtesy of total debt/GDP which in one year will surpass 250%, will mean every incremental Yen of government revenues will go to paying down nothing but interest on the debt.

So while Japan appears to finally be on the verge of that bond funding crisis it has been able to offset for nearly three decades, at least the Yen will plunge. Sounds like a fair tradeoff.

We, for one, can wait to write about Abe's -2% deflationary "target" when Japanese inflation is in the double, triple or much more, digits.

Yep: 2013 is shaping up to be a most amusing year.

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francis_sawyer's picture

Can they manage to pull this kind of paper ponzi in the US for another 20 years???... Can they really???


I mean, consider... 20 years ago ~ Rodney King was geting the shit beat out of him & Monica Lewinsky's dress was 5 was away from Mitch 'Bubba' Cumstein's target practice...

His inspiration came a full 10 years before that...

Azannoth's picture

2013 is goint to be the Year the S.H.T.F, Japan? Greece? Spain? US? Iran War? .. take your pick 1 domino is enough

francis_sawyer's picture


Popo's picture

2010 is going to be the year when TSHTF (It can't possibly go on for longer)

2011 is going to be the year when TSHTF (It can't possibly go on for longer)

2012 is going to be the year when TSHTF (It can't possibly go on for longer)

2013 is going to be the year when TSHTF (It can't possibly go on for longer)

Manthong's picture

It will be a hoot when the ass-clowns that run fiscal policy and the capital markets discover that the masses, who are now deprived of an opportunity to have fiat savings earn an honest buck through interest are on to the scam..  and as they yank their accumulations (which are the only real capital basis) away from the system and engage in alternate accumulation and exchange methods, how quickly and massively they will get their coveted inflation back.

Mentaliusanything's picture

Add to that, as the Yen depreciates quicker than a icecream in a desert wind storm, you have a country running a large and getting larger trade deficit. prices for fuel and energy will rise at alarming rates along with food imported because Japan irradiated a large part of it food bowl. I give you the Land of the setting Sun:

Peter Pan's picture

Gold raincoats with a silver lining are reommended for when the diarrhea hits the fan. The recent take down is as powerful a sign of manipulation as there has ever been and those with spare cash who hesitate to buy will find themselves in deep diarrhea.

Water Is Wet's picture

The boogieman is always just around the corner.  Yawn.

Eireann go Brach's picture

Kyle Bass will be proved right once again and Japan will blow itself up in 2-3 years, yet the same fucking idiots who call themselves financial experts are snickering again on CNBC at the predictions of Bass and Schiff et al!

centerline's picture

Doubt it.  But it won't stop them from trying.  I suppose it all comes down to how well they can manage the dislocations right up to the point that something unexpected breaks.

Silver Bully's picture

"Can they manage to pull this kind of paper ponzi in the US for another 20 years???... Can they really???"

Is it possible? Certainly. What I want to know is . . .how far can Japan take this?

Does anyone have any kind of realistic time line for when this type of easing goes boom? Really.

Salon's picture

When the people of Japan collectively realize what we know, that there are too many paper promises and not enough real economic output to service all those promises.

This requires a fundamental shift in philosophy. Everything these people believed in will turn out to be false. No one wants to face that, so even as the population become aware they will continue to resist change as a whole.

I bet only 10 percent make it through with their assets and standard of living intact.

Japan will take another ten to 20 years to collapse.

OpenThePodBayDoorHAL's picture

Kyle reminds us that it could be very sudden. Mexico said "We won't! No chance! Never!" then the next day they devalued by 60%

I am Jobe's picture

Wow, Bendonkey and gang are now jealous. Time to hang the sheeples and they will. More phones and crap being thrown at the inbred fucks of the USSA>

shovelhead's picture

Japan, as a nation, will soon be the subject of an attack of explosive diarrhea.

Think it's contagious?

We'll see.

Beam Me Up Scotty's picture

Great, that's all we need. Explosive radioactive diarrhea.

Thomas's picture

But that's OK because they owe it to themselves (and you can't eat it.)

jannewmx's picture

Japanese scat porn says they will indeed eat it when push comes to shove.

malikai's picture

One of the symptoms of late stage acute radiation sickness is the loss of the lining of the intestines.

You literally shit your guts out.

Peter Pan's picture

Is that a glow in your pants or are you just unhappy to see me?

LeisureSmith's picture

Hmm..The Bank of Japan’s holdings of the government’s bonds exceeded 100 trillion yen ($1.2 trillion) for the first time, raising the risk that yields will jump on perceptions that it is financing public spending. Perseptions?

If you get your face ripped off and no one is there to percieve it, did you really loose face?

sablya's picture

Well, boys, this looks like the end of the beginning of the beginning of the end.  Who is going to buy Japanese debt at 0.767% (10 year) if inflation is at 2%/year?  Not even a loyal Japanese citizen.  And if interest rates are forced to rise to become attractive, how is the Japanese government going to pay the interest on their debt?  Only by inflating more rapidly.  And with inflation at 5%, how much higher will interest rates have to go?  

DR's picture

Japan is goin print...that is all they can do.

Kiwi Pete's picture

Yep, this is what Kyle Bass was saying. Why you can't inflate your way out of excess debt. Anyone dumb enough to try it will end up defaulting quick smart as interest rates rocket. Checkmate Abe!

q99x2's picture

Japanese Abe will not beat Bernanke to be the first person to end the world. Physcal cliff or not my money's on Bernanke's printing technology and market manipulation techniques.

tooriskytoinvest's picture

Global Economy Facing Serious Danger As The Third Largest National Economy Is Now Very Likely Going To Plunge Into Oblivion And This Time Is Different

Pretorian's picture

Kyle Bass is maybe wrong on Japan. He is betting 3 years in a row on Japanese chaos and keep going on without results . Lets wait few more decades and see if he is right.

Thomas's picture

I put my money on Kyle. As to timing, I don't put any stock in claims of "when". With that said, if I don't have the train schedule, I stay off the tracks. Another metaphor: getting hit by the cluster truck.

agent default's picture

The funny thing with these policies is that you don't see inflation at first, but once it starts it will go to 20% a month easily.  And there will be no way to contain it.

Ricky Bobby's picture

I believe I understand how they think. If you drop the 10 year interest rate to one millionth of a percent .0000001 then interest on a trillion is only 100,000 per anum. They can drive the 0 bound to infinity so nothing to worry about. Cause theoretically there is no end to lowering interest rates. There is no limit Bitchez!

hooligan2009's picture

the europeans are already dabbling more and more in negative interest rates for government bonds for up to 2-5 years (in switzerland). 

almost all government bonds yield negative returns in real terms of around 1-3% per annum.

easier to reduce government debt if you made the coupon say, -3%!

SeattleBruce's picture

"There is no limit Bitchez!"

Until there's no one to buy the bonds, and they can't restrain real prices any longer.

fonzannoon's picture

Did Bass make his bets through CDS contracts? who wrote the swaps? I would love to know what bank has to make good on it.

DR's picture

A TBTF bank meaning the US taxpayer is on the otherside of any bet.

SeattleBruce's picture

Meaning the productive will be forced to keep bailing out the unproductive.

I am Jobe's picture

Sheeples thinking the idiots they put in office will solve the problems, shows the ignorance and stupidity.

Bogdog's picture

Japan is fooked. There's no way this ends well. There's no way to unwind from where they are without death/destruction/collapse. Pick two.

Seasmoke's picture

destruction and collapse.......most will just wish they were dead

falak pema's picture

pick two : Ben & bernanke (sorry Jerry wasn't available).

Atomizer's picture

2013 Q1 or mid Q2. Enjoy my humor..


Wankers’ within the membership coat riders are getting a wee pissed off. Contractual agreements have been changed, new monthly country club spending targets have been raised. Failure to comply will result in a 25% surcharge in not meeting your minimum spending obligation. Three consecutive months of contractual breach will land an appearance in front of our collective board of non-compliance fee collection committee .

Angus McHugepenis's picture

Ha!... that reminds me of my buddy back in the late 90's. He and his wife (her legal name was Yes Dear) had a membership at a posh golf club. They were required to spend a minimum at the club each month or they would simply be billed for it whether they used it or not.

I fucking hate golf (sorry Knukles) but I sure was eager to sample the excellent quisine at the club on my buddy's tab... since he had to pay for it anyway.

Golf Club Welfare... I'm Lov'in It!

JackT's picture

Bass..etc. don't account for the fact that everyone is all in, and no one is willing to be the first to reach for they money back due to the threat of civil unrest and world war.

ramacers's picture

this is all one big global crack trip.

hooligan2009's picture

can you please explain to me what would happen if central banks simply cancelled the Government debt that they own? The debt has already been monetized (money injected into private sector in exchange for government debt) and represents a book entry if looked at from the perspective of the national accounts. Central bank purchases of debt (with a coupon) are merely an exchange for banknotes (without a coupon). I can see how this would be problematic in Euroland, but why does the acknowledgement of the truth of a book-keeping entry for Japan, the US and the UK result in such an issue?

Clint Liquor's picture

What a brillant idea! Just declare all US Treasury Notes, unredeemable. I'm sure no one holding them will mind.

hooligan2009's picture

I meant only those notes held at the Fed

Salon's picture

Long story short, it would lead to loss of confidence in the dollar.

However the Fed has effectively cancelled the debt it owns anyway.

If the Fed never sells that debt back into the market it is just a book entry gimmick that functions the same as officially canceling the debt.

There will never be a wind down of these asset purchases.

So this way you have your debt cancellation without making it obvious.

And bernank hopes slow inflation cancels a lot of the debt paper remaining in private hands.

Poor Grogman's picture

The global central banking cartel , might just decide to let Japan go Weimar as a warning to other countries not to meddle with C/B " independence".

Also if the Yen is destroyed, then the USD will be used as a replacement in Japan, this would give the Fed an even bigger demand for it's main export product.

The USD would thus score a fairly major point, in the battle for global hegemony.

Just might happen, after all...

formadesika3's picture

My take on that is that it would reduce the total gummint debt from a bookkeeping standpoint. But it would also send a signal that the Fed and the gummint were throwing off all restraints to reducing federal deficits.